Productivity

Productivity is a measure of the efficiency of production. Productivity is a ratio of production output to what is required to produce it (inputs). The measure of productivity is defined as a total output per one unit of a total input.

These definitions are short but too general and insufficient to make the phenomenon productivity understandable. A more detailed theory of productivity is needed, which explains the phenomenon productivity and makes it comprehensible. In order to obtain a measurable form of productivity, operationalization of the concept is necessary. In explaining and operationalizing a set of production models are used. A production model is a numerical expression of the production process that is based on production data, i.e. measured data in the form of prices and quantities of inputs and outputs.

It is advisable to examine any phenomenon whatsoever only after defining the entity the phenomenon under review forms part of. Hence, productivity cannot be examined as a phenomenon independently but it is necessary to identify the entity it belongs to. Such an entity is defined as production process.

The benefits of high productivity are manifold. At the national level, productivity growth raises living standards because more real income improves people's ability to purchase goods and services, enjoy leisure, improve housing and education and contribute to social and environmental programs. Productivity growth is important to the firm because more real income means that the firm can meet its (perhaps growing) obligations to customers, suppliers, workers, shareholders, and governments (taxes and regulation), and still remain competitive or even improve its competitiveness in the market place.